Romania’s disappointing Q2 GDP flash estimate takes Government and central bank by surprise

Romania’s GDP increased by 0.8% y/y in Q1, accelerating from the thin 0.5% y/y advance in Q1. Still, it lags significantly behind the Government’s and even the central bank’s expectations, according to the flash estimate published by the statistics office INS.

The figures are disappointing and likely to trigger downward revisions for the full-year economic growth projections.

Romania’s Government hasn’t updated its macroeconomic scenario used for budget planning, which assumes a significant 3.4% economic growth in 2024. The Government has to submit a fiscal consolidation plan to the European Commission in October as the public deficit already hit 3.6% of GDP in H1 (versus the 5%-of-GDP full-tear official target).

Separately, the latest poll among CFA analysts, dating from the end of June, indicates expectations for 2.8% economic growth, a figure that seems at least optimistic, if not unrealistic, after the Q2 GDP flash release.

The quarterly advance of the seasonally-adjusted GDP eased from 0.5% q/q in Q1 to 0.1% q/q in Q2.

Thus, in the second quarter of the year, Romania’s seasonally adjusted GDP stagnated around the same level for the fourth quarter in a row. It returned precisely to the same level where it was in Q3 last year after a small decline in Q4 corrected in Q1.

“The latest data and analyses point to a notable quarter-on-quarter economic growth in 2024 Q2, visibly more robust than previously anticipated, implying a marked step-up in the annual GDP dynamics,” the National Bank of Romania (BNR) said in July when cutting the policy rate for the first time since January 2023. The 0.1% q/q can hardly be seen as “notable.”

The positive base effects, significant in H1 but not so much in H2, the disappointing industrial activity, and the weak crops in agriculture leave little hope for robust economic recovery in the second half of the year. Consequently, projections for the country’s economic growth above 2% this year tend to be unrealistic.

Notably, the statistics office INS first published the Q2 GDP flash estimate with an error, later corrected with no notification. Q1 GDP y/y growth was reported as 0.1% - a sharp revision from 0.5% y/y previously reported. The release was later revised, and Q1 GDP growth was restored to 0.5% y/y. Consequently, the annual growth for H1 GDP is 0.66%

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